The ever rising schooling costs and unemployments are the main reason of massive student loan defaults. Most of the students are thinking about ways to get rid of this problem. There are many options available, but it's not always possible to get all the details on one page. Moreover, you need to pick the right option to secure your financial needs.

In one of my previous articles, I had discussed about federal student loan debt consolidation. This article is about all types of repayment options that are available for students who desperately want to balance both their payments and financial life. I hope, my articles are clean enough to show you the right path to mitigate your financial obligations you’ve accumulated in your college days.

Types of repayment options for federal student loan debts

Choosing the right option is important. One blunder can ruin your financial life. So, read carefully about all the types of repayment options to pay off your federal student loan debts. It will help you to make the right choice.

1. Standard Repayment Plan

If you don’t choose other payment options that are available to pay off a federal student loan, then automatically you’ll be enrolled in this option. This plan will be offered by your lender. In this repayment plan, you need to make fixed monthly payments ($50) for the next 10 years.

But the best part is, you can pay off the loan faster and thus you're paying less interest for the loan.

2. Graduated Repayment Plan

This option can work best for fresh graduates and students who earn less; because, this option will allow you to start off with the lowest monthly payment and increase it every 2 years. You need to make payments towards the interest rate within the first two years.

So, make sure that your income will increase in future before choosing this plan.

3. Extended Repayment Plan

By opting for this plan, you can extend the repayment up to 25 years. This plan allows you to make lower monthly payments over a longer time. But, the loan repayment time will depend on your loan amount as well.

You need to have more than $30,000 outstanding balance on Direct Loans or Federal Family Education Loans borrowed after October 7, 1998, to get approval for this plan.

Repayment options for students who earn less

Students who have low-income status, and have high student loan debt burden can choose these plans.

Remember, you’re eligible for these plans based on your temporary financial hardship only.

1. Income-Contingent Repayment Plan

You can go for ICRP (Income-Contingent Repayment Plan) if you have a federal Direct loan. In this plan, your payment could be as low as $5 or even $0). But, with time, the principal amount will increase if the payments are less than the monthly accrued interest.

Remember, you need to pay off the loan within 25 years; otherwise, the government will take action.

2. Income-Based Repayment Plan

If you have both Direct loans and FFELs (Federal Family Education Loan System) , then you can choose IBRP (Income-Based Repayment Plan). This plan can give you more flexible options than any other plan. Remember, to qualify for this plan, you must show “partial financial hardship”. Your monthly payments will be adjusted according to your income and the size of the family.

Your debt will be forgiven after 15 years of regular payments.

3. Income-Sensitive Repayment Plan

For FFEL loan, you may be eligible for ISRP (Income-Sensitive Repayment Plan). Your payments will be adjusted according to your total loan amount, family size, and total annual income. The monthly payments should be 4% - 25% of your monthly income.

This plan is available for 5 years. You need to choose another repayment plan after 5 years.

4. Pay As You Earn repayment Plan

In this plan, your monthly payments will be at least 10% of your discretionary income. The payments will be recalculated and be adjusted every year based on your annual income and family size. You need to show “partial financial hardship” like IBRP.

You can pay off debt after 20 years of regular payments.

5. Repayment plans for Perkins loans

A student who has a Perkins loan need to pay 40% each month. The extension of repayment will depend on the school's policy.

The period of extended repayment will be 10 years or more based on illness or joblessness. Contact your school to know more about this plan.

6. Loan Consolidation

The consolidation process is good to pay off several federal loans. Try to consolidate your federal student loan debts into one Direct consolidation loan. Thus, the repayment will not give you much pain, and you can manage all payments together.

7. Get a forbearance

If you ask for forbearance, then you need to get the permission of non-payments for a certain period; or, you can get a reduced payment amount as well.To qualify for this option, you need to show:

a) Poor health condition.
b) Unexpected personal problems.
c) Inability to pay the loan within the stipulated time as per the repayment term (generally 10 years). d) You need to make 20% of total monthly payments on your monthly income.

Contact your loan provider to know the details. You need to explain your situation while asking for forbearance.

Read more - Deferment and Forbearance: Earn your financial peace after college

8. Go for deferment

In the case of financial hardship and unemployment, deferment option can give you relief from payments for a certain span of time. To qualify for this option, you need to consider some terms and conditions as per the type of loan.

You shouldn’t be late for more than 270 days in loan payments.

Contact your service provider to know about the different types of deferment options.

Read more: 7 Ways you can pay off student loan debts tactfully

Repayment options for private student loan debts

We have talked a lot of repayment options about the federal student loans. You might be thinking about repayment option for your private student loan, too. Don't worry! You'll get ample information to get rid of your private student loan as well.

1. Refinance private student loan

With a student loan refinance, you're replacing your loan with a new one following new terms. Refinancing student loan allows you to get lower interest rate or reduced payment period of the new loan. You may save in the interest over the life of the loan. However, You need to apply and get approval for the loan. You can apply for the loan to a bank or a credit union.

2. Student loan consolidation

If you're facing problem to manage your multiple student loan payments are defaulting on them, then you can consider loan consolidation. In this option, you can merge all your student loans into a new loan. You may get a lower interest rate on this new loan. You can contact your lender to negotiate the interest rate or take help of a consolidation company to do the same.

3. Consider forbearance or deferment

Just like federal student loans, your lender can offer forbearance or deferment. Through these options, your lender might offer you a few sort of relief on the basis of your request. However, the forbearance is for a limited time. You need to get your lender's approval showing that you're going through a financial hardship. You can also be eligible for deferment. In this option, interest might accrue during the time when you’re not making any payments on the loan.

4. Declaring bankruptcy to discharge private student loan

This one can be your last resort. You can file bankruptcy to get rid of your student loan debt. To do so, you have to file Chapter 7 or Chapter 13 Bankruptcy based on your eligibility. However, you need to prove that you're facing "undue hardship" due to your private student loan. The process is a little bit complicated, but you may get positive result with the help of a good lawyer.

Avoid student loan scams to make your repayment easier

You may be aware of many scams like identity theft, investment scam, loan scam, cyber scam, etc. But, you may not be aware of student loan scam. Here are some popular student loan scams. Read carefully.

A. Advanced fee scam

You may get a call or an email from a student loan company offering "best" interest rate and term. In return, you have to pay a "small" upfront fee (1-5% of the loan amount). Simply ignore the proposal straight away.

Remember, an authorized student loan company never asks for any fees.

B. Loan consolidation scam

Consolidating student loan debts can be a good choice. But, be aware of scam related to it. It mainly involves a third party company. If the company offers to consolidate your debts for a fee (processing fee, administrative fee, or upfront consolidation fee), then run away from the proposal. The company is trying to make you fool. Because if you have federal student loan debt, then you can consolidate your debts through the Federal Direct Consolidation Program. If the private student loan is your concern, then you have to check the authenticity of the company before signing any agreement. Remember a debt relief company should follow the regulation authorized by the FTC.

C. Law firm lawsuit student loan scam

This scam involves a law firm who asks you to make the full debt amount to the law firm. After getting the payment, they'll start negotiation with the lenders. But, it has been seen that this type of law firm doesn't make any payments to the lenders. Thus the borrower defaults on the loan. You will never be able to settle your debts, or the process may take a longer time, even years. Try to stay away from this type of law firm.

Final note

Apart from these options, you can follow your strategy to manage your private student loans. Talk to your lender for a flexible payment option or pay some extra amount toward the loan with the higher interest rate.

You can call the Loan Consolidation Information Call Center at 1-800-557-7392 to ask questions regarding consolidating your federal student loans or Direct consolidation loan.

  • expertise badge
  • TrustLink logoTrustLink logo
  • Customer ratings on BBB
  • IAPDA logo
  • Calchamber Member
  • Calbar Registered
  • D&B
  • Trustpilot
  • yelp logo